Resource Library

Housing Found to be Large Contributing Factor to Racial Wealth Gap

A new study from the Institute on Assets and Social Policy at Brandeis University finds that the gap in wealth between white and African-American households has tripled over the past 25 years. The study traced the wealth of 1,700 families between 1984 and 2009, and found that the wealth gap by race increased from $85,000 in 1984 to $236,500 in 2009.

The researchers used data from the Panel Study of Income Dynamics, a national longitudinal study that began in 1968. This research focuses on African-American and white households because the sample size of Asian-American and Latino households was too small.

According to findings, the number of years of homeownership accounts for the largest portion (27%) of the wealth gap between white and African-American families. Home equity tends to be much higher for white households, because residential segregation lowered the demand for homes in predominantly non-white neighborhoods and put an artificial ceiling on home equity for African-Americans who own in those neighborhoods. Other contributing factors include historic differences in access to credit by race, and higher interest rates and greater access to family financial assistance with down payments among white homeowners.

The growing wealth gap is largely attributed to the loss of wealth tied to housing during the housing market collapse and the foreclosure crisis. A higher percentage of wealth (53%) was tied to homeownership for black families, compared to white families (39%). As a result, the housing collapse had a greater impact on the wealth of black households. Overall, half the wealth of African-American families was lost during the Great Recession.

Other factors that contribute to the wealth gap include income and employment. Black workers tend to work in industries where they are less likely to have retirement plans, and unemployment impacts black households more significantly and for longer periods of time. Inheritances also play a role: whites are five times more likely to inherit money than African-Americans.

The researchers conclude that public policies can be implemented to reduce the racial wealth gap. First, they recommend that fair lending and fair housing policies are strengthened. They also recommend ending preferential tax treatment for large estates and inheritances. Furthermore, they suggest investing further in childcare and education, while also enforcing equal pay policies.